Is the Energy Industry Shooting Itself in the Foot?

This Alaskan oil pipeline was built to withstand a substantial earthquake. Photo credit: Flickr/Malcolm Manners

It's no wonder many Americans are against TransCanada's (NYSE: TRP) Keystone XL Pipeline. In the past month alone a pipeline owned by Tesoro Logistics (NYSE: TLLP) and another owned by ExxonMobil (NYSE: XOM) were found to be leaking oil. In Exxon's case, it's not the first time this year that one of the company's pipelines sprung a leak. With the public already worried about the environmental and health risks of a pipeline rupture, it's surprising to see so many pipeline leaks this year. Each and every leak will make it all the more difficult for the industry to get new projects approved.

It's also not helping matters that the Tesoro Logistics owned pipeline was just 20 years old. Nor that early investigations are pointing toward corrosion. For comparison's sake, ExxonMobil's Pegasus Pipeline, which spilled several thousand barrels of oil in Arkansas was built in the 1940s. The initial cause of that rupture points to original manufacturing defects.

Exxon's latest spill, this time in California, doesn't seem to be that damaging. In this case a pipeline which connects to one of its refineries was taken offline in what the company is calling an abundance of caution. This is after an oil leak was found in the area around that system. However, it's just one more reason for Americans to be concerned for both health and safety when it comes to our pipelines.

These missteps are beginning to add up. Not only is TransCanada finding it tough to get its Keystone XL project approved, but other pipeline operators are running up against similar obstacles. Williams Companies (NYSE: WMB) , for example, is running into some opposition to its proposed Bluegrass Pipeline. In this case the project would take natural gas liquids from the Marcellus and Utica shale plays to the Gulf Coast. While Williams has secured land-use deals in nine of the 13 counties along the proposed route, it hasn't been a seamless process. Several environmental groups and local residents are opposed to the project, fearing a leak would spew hazardous materials that would damage property and endanger health.

Clearly, the industry needs to step up its efforts to ensure greater pipeline safety. Though it should be pointed out that pipelines historically have been a much safer mode of transportation for oil and natural gas liquids than truck or rail. The tragic disaster in Canada is evidence of the explosive dangers of oil-by-rail. Not only that, but the chance of a spill, despite recent headlines, is much lower for a pipeline. In fact, road transportation has an incident rate of nearly 20 per billion ton-miles, rail had an incident rate of just over two per billion ton-miles, while pipelines are the best at just 0.6 per billion ton-miles. However, in a country that no longer has much of a tolerance for oil spills any incident raises alarms.

The industry really needs to step it up. The first thing it can, and should do, is better monitor its pipelines. This includes more oversight and inspecting older pipelines much more regularly with special attention to areas surrounding sensitive environmental zones as well as more densely populated areas. It shouldn't have to be forced to do this, it just needs to make sure its pipes wont break. End of story.

Of course that comes with a cost, and one that the industry needs to bare. If it doesn't then it could cause America's energy boom to slow down, if not grind to a halt. Oil producers need these projects to get product to marketplaces. It shouldn't be shooting itself in the foot by allowing these pipes to leak valuable product into the fields or worse, destroying homes.

North America has the opportunity to displace foreign oil. Energy independence is actually within reach. We just can't have aging pipelines wasting that precious resource.

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